An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 8% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L. What will the value of the Bond L be if the going interest rate is 5%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 5%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 9%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 9%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 13%? Round your answer to the nearest cent. $ Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change? Long-term bonds have greater interest rate risk than do short-term bonds. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. Long-term bonds have lower interest rate risk than do short-term bonds. Long-term bonds have lower reinvestment rate risk than do short-term bonds. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 8P

See similar textbooks

Related questions

Question

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 8% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year.

Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L.

What will the value of the Bond L be if the going interest rate is 5%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 5%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is 9%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 9%? Round your answer to the nearest cent.
$

What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent.
$

What will the value of the Bond S be if the going interest rate is 13%? Round your answer to the nearest cent.
$
Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change?
1. Long-term bonds have greater interest rate risk than do short-term bonds.
2. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
3. Long-term bonds have lower interest rate risk than do short-term bonds.
4. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
5. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.